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Men's Wearhouse-J.A. Bank talk suits investors

Men's Wearhouse is raising its offer for Jos. A. Bank Clothiers to about $1.61 billion and taking the bid directly to its rival's shareholders. It also plans to nominate two people to the Jos. A. Bank board.

FREMONT, Calif. — Despite rebuked overtures on both sides, The Men's Wearhouse and Jos. A. Bank could wind up together for better or worse.

The courtship to combine the two men's clothing companies has dragged on for months, with each chain having their offer to acquire the other rebuffed. And the saga to combine the two rivals took another turn on Monday when Men's Wearhouse boosted its offer to acquire Jos. A. Bank to $1.61 billion.

Investors like the news. Shares of Jos. A. Bank rose 4.5% to $56.87 for the day. Shares of Fremont, Calif.-based Men's Wearhouse rose 2.15% to $51.68.

While the companies continue to play hard to get, analysts say a combination is inevitable. It would enable both chains to cut costs and boost profits in an increasingly competitive market in which shoppers are scrutinizing their purchases more. But so far executives have been unable to hammer out a deal despite interest on both sides.

"Anybody who follows corporate America can see that these two companies have to be joined," said Belus Capital Advisors analyst Brian Sozzi. "They are specialty retailers in a price-competitive industry with limited growth prospects."

The Men's Wearhouse Inc. is now offering $57.50 per share for Jos. A. Bank, up from its prior offer of $55 per share, or $1.54 billion. Jos. A. Bank rejected the previous offer in late December, saying it was too low. Men's Wearhouse said it is taking the bid directly to Jos. A. Bank Clothiers Inc. shareholders. It also plans to nominate two people to the Jos. A. Bank board.

"We are committed to this combination," Men's Wearhouse President and CEO Doug Ewert said in a statement.

Jos. A. Bank said in a statement that it is reviewing the offer and will make a recommendation for shareholders by Jan. 17. But the company said at the present time said shareholders should take no action related to the tender offer.

The announcement by Men's Wearhouse comes three days after Jos. A. Bank Clothiers Inc. lowered the trigger for its shareholder rights plan, which is typically used to help ward off hostile takeover attempts. A shareholder rights plan usually allows existing shareholders to acquire more stock at a discounted rate to ward off the investor collecting a big stake. Jos. A. Bank cut its trigger to a 10% ownership stake from a 20% ownership stake — the same ownership threshold as Men's Wearhouse's shareholder rights plan.

Jos. A. Banks was the first to express interest in a combined company. In September, a few months after Men's Wearhouse Inc. ousted its founder and chairman, George Zimmer, Jos. A. Bank Clothiers Inc. offered to buy its larger rival for $2.3 billion, or $48 per share. Men's Wearhouse turned down that offer, and after Jos. A. Bank dropped the bid, Men's Wearhouse turned the tables with its $55 per share offer.

Jos. A. Bank, based in Hampstead, Md., sells men's tailored and casual clothing and shoes and is known for ads that say consumers can buy one suit or sport coat and get three for free. Men's Wearhouse, which is based in Fremont, Calif., which owns the Men's Wearhouse, Moores and the K&G chains, has been going after younger shoppers with suits with slimmer silhouettes.

Stifel Nicolaus analyst Richard Jaffe said it's likely the two companies will combine.

In a client note, Men's Warehouse shareholders would stand to benefit from $100 million to $150 million in annual cost savings over three years as the companies combined purchasing, customer service and marketing and corporate functions. And he said there are even greater benefits to be realized over time.

"The benefit of taking over your largest rival and becoming the largest specialty retail channel for men's clothing is significant, albeit difficult to quantify," he wrote in a client note. Companies including TJX and Macy's have acquired rivals in the past and their profitability has improved "dramatically," he added.